A very hard soft landing
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Consumer confidence is ebbing in America. But investors, economists and the press are still bullish. Or delusional.
“Housing data not as gloomy as bears think,” says a recent article in the Financial Times, focusing on the softening of the US residential property market. And in America, BusinessWeek tells the same story: “Housing: the roof that won’t collapse.”
Leading economists, including Federal Reserve chief Ben Bernanke, and top financial journals all agree: the housing market in America ain’t what it was, but it still ain’t bad. Drawing on the recent experience of both the UK and Australia, experts are confident that the US housing decline will be a ‘soft landing’. BusinessWeek goes so far as to propose “Five ways to play the housing slump… in preparation for the inevitable rebound.”
This property bubble has scarcely begun to lose air and already investors are getting ready for the next one! They’re preparing for a landing so soft, prices may never touch the ground, which makes us want to reach for our seat belt and check the airbag.
A friend reports from the erstwhile hottest US market, south Florida: “It’s over. The time to sell was a year ago. A guy came and offered us $500,000 for that place we bought. We wish we’d taken it. Now, we’ll be lucky to get $450,000. But the thing is, we can’t even get anyone to look at it.”
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In the space of less than ten years, according to US economist Robert Shiller’s index, the real value of residential property doubled. And householders doubled up their debts too. These things don’t happen every day; in fact, they’ve never happened before.
Now, Paul Kasriel at The Northern Trust says it’s the worst supply/demand equation of residential real estate in 34 years. Sales in July fell more than a fifth. Inventories were up more than a fifth. The arithmetic has a lot of householders going to the drinks cabinet for another fifth. If only they could sell this year’s property at last year’s prices!
Don’t worry, says our friend, John Mauldin, we’ll just muddle through as usual. Americans have no reason to doubt it. They dread neither slump nor boom, neither war nor peace; all their landings are as soft and muddled as their lunches. Everything will be managed by the authorities so as to do no great damage to the homeland, they believe.
As to recession, they fear not. They recall the last one almost fondly. Tighten their belts? Even before they had forgone a single Krispy Kreme doughnut, or mended a single sock, the recession of 2001-2002 was over. And on its heels came the biggest boom in house prices the world had ever seen. Slump in housing? Bring it on! They just hope they don’t miss it. Later, they’ll probably wish they had.
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